Firms' Tweets and Stock Price Discovery
Abstract
Do firms' tweets improve stock price discovery at quarterly earnings announcements? We address this question using a comprehensive sample of tweets released by S&P 1500 firms at quarterly earnings announcements from 2008 through 2021. Firms' tweets are associated with stronger stock price and volume reactions to earnings announcements. In addition, firms' tweets reduce investor uncertainty, increase the timeliness and efficiency with which stock prices reflect information, and reduce the post-earnings announcement drift. We document that firms' tweets improve stock price discovery by enhancing firm visibility and increasing retail investor trading, which facilitate faster incorporation of information into stock prices. Our inferences are robust to a host of control variables, including alternative measures of media coverage, and persist in both a propensity score matched sample and an entropy balanced sample, where firms that use Twitter are matched with similar firms that do not. Our findings are of interest to regulators who wish to improve the informativeness of security prices, investors who are interested in information that affects prices and volume, and managers who seek channels to communicate with investors.